Op-Eds

Looking long term

The demand for motor vehicles in Vietnam continues to be in good shape as the passenger car and commercial vehicle markets should continue to see double-digit growth annually as there are real needs to be met. Import taxes will fall for mainstream brands qualifying for lower ASEAN rates. At the same time the new special consumption tax calculations will balance some of this tax gain, so growth will more organic than fiscal. From the latest decisions by Vietnamese authorities on the special consumption tax roadmap we foresee higher sales of fuel-efficient models with smaller engines. The other major trend is a move towards Euro 4 emission standards, with cleaner fuels allowing for more environmentally-friendly vehicles.

From January to July this year the new passenger car market grew 38 per cent and the commercial vehicle market by 74 per cent. In both cases completely-knocked-down (CKD) sales grew the most, at 41 per cent and 85 per cent, respectively. As 2014 was the best year ever for the passenger car market in Vietnam, there must have been greater efficiency to record such remarkable results. From prior personal experience with CKDs abroad, the more diverse the number of models to assemble the more difficult it is for a CKD assembler to increase efficiency. The more competitive the market, the more models you need to offer, which negatively effects efficiency. As Vietnam’s market size is still small, efficiency represents a challenge unless the production scope of Vietnamese assemblers can become pan-ASEAN. Vietnam’s passenger car market is even more challenging as new models gain massive appeal among consumers that then fades away as newer models appear. Because of the relatively small yet very competitive market size, stricter emission standards will be a source of additional investment for them.

Import tax agreements have been signed by Vietnam within numerous free trade agreements (FTAs), and the sheer magnitude of FTAs signed makes it rather challenging to understand the full picture in terms of taxes and timelines, and to add to the complexity some of these FTAs supersede others.

In terms of policy recommendations, official importers like Audi in Vietnam as well as local assemblers are strategic tax contributors to Vietnam’s State budget. Automotive players, by the nature of their activities, all invest sizably and want to secure their long-term commitment in Vietnam. Thus, Vietnamese authorities should have a keen interest in maintaining open and objective communication channels with the different players and stakeholders.